RMSC: The Perspective from the Defense

The next panel focused on Enforcement issues from the perspective of the defense.  The panel was moderated by Dan Shea, Partner, Hogan Lovells.  The panel featured Randall Fons, Partner, Morrison Foerster; Joan McKown, Partner, Jones Day; Holly Sollod, Partner, Holland & Hart LLP; and David Zisser, Of Counsel, Davis, Graham & Stubbs LLP.  The panel discussed the process and utility of writing a Wells submission, the SEC’s new cooperation initiatives, and recent developments regarding the Janus decision.

The panel had conflicting views on the utility of a Wells submission but agreed it was useful for policy considerations that may be beyond the scope of the SEC’s initial investigation.  The panel expressed caution in using the new cooperation initiatives used by the SEC because of the lack of certainty due to a shortage of case law. 

Finally, the panel discussed recent developments regarding Janus and its effect upon SEC enforcement actions.  The following two decisions from the Southern District of New York are in conflict: S.E.C. v. Kelly, 2011 WL 4431161 (S.D.N.Y. September 22, 2011) and S.E.C. v. Pentagon Capital Management PLC, 2012 WL 479576 (S.D.N.Y. Feb. 14, 2012).  Two issues were raised in both cases: first, whether Janus was applicable to actions brought under Section 17(a); and second, whether Janus affects the SEC’s ability to plead scheme liability under subsections (a) and (c) of Rule 10b-5.  The court in Kelly held that Janus applies to these actions, whereas the court in Pentagon Capital Management held that these actions were outside the scope of Janus.  Furthermore, In re Flannery, an SEC administrative proceeding, extended the Janus standard to SEC enforcement actions such as those brought in Kelly and Pentagon Capital. That case is currently on appeal.  

David Deagle